Victor EzejaThe Central Bank of Nigeria (CBN) has been making efforts to stabilise the country’s foreign exchange (FX) market, a critical component of economy. With the naira facing persistent volatility, the CBN has introduced a series of reforms aimed at stabilising it. These include unifying exchange rates, boosting FX liquidity, and encouraging local production.
While these measures are designed to strengthen the economy in the long term, their immediate impact on the average Nigerian is significant.
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The CBN’s approach revolves around several key policies:
Exchange Rate Unification: one of the FX reforms introduced by the President Bola Tinubu’s administration upon assumption of office was unification of exchange rate windows. This is involved merging multiple exchange rates (official, parallel, and others) to create a single, transparent rate.
This, according to analysts, was to reduce arbitrage, curb corruption, and attract foreign investment.
Naira Floatation: The second leg of the FX reforms was the naira floatation which gave opportunity for market forces to determine the exchange rate. This however, led to a devaluation of the naira pushing the exchange between Naira and other hard foreign currencies like Dollar, Pounds and Euro to an all-time high. With the implementation of the policy by the CBN, the exchange first jumped from N471 per dollar to N755 in June 2023. The value of local currency subsequently plummeted, reaching a low of about N1,900 per dollar.
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While this policy was intended by the apex bank to reflect the true value of the currency and stabilize forex reserves, it, however, elicited mixed feelings among the citizens. While some acknowledged the immediate impact on exchange rate, but expressed optimism that the reforms would lead to economic sustainability in the long term, others criticised it, asserting that together with the petrol subsidy removal, Nigeria has been brought to its knees, with the citizens bearing the brunt of untold economic hardship manifested in surging inflation rate and other negative macroeconomic indicators.
Forex Restrictions
The apex bank also introduced some forex restriction measures, limiting access to forex for certain imports. The aims is to reduce dependency on imports and conserve forex for critical sectors.
The bank recently introduced another form of foreign exchange restrictions on Bureau de Change operators, capping weekly purchases from authorised dealer banks at $25,000. This was to strengthen oversight of the parallel market and improve transparency in foreign exchange transactions.
Impact on the Average Nigerian
Rising Cost of Living
The devaluation of the naira has led to a surge in costs of imported goods such as food, medicals, electronics, and many others. For example, the price of bread, which relies on imported wheat, has surged.
Annual inflation had reached a 28-year high of 34.80% in December 2024, eroding purchasing power and making it harder for families to afford basic necessities. It however eased to 24.48% in January 2025 following the rebasing of the Consumer Price Index (CPI) to reflect the country’s true economic size.
Employment and Business Challenges
Manufacturers: Businesses that rely on imported raw materials face higher production costs, leading to layoffs or price hikes for consumers.
Local Industries: While forex restrictions aim to boost local production, many industries struggle to meet demand, resulting in shortages and higher prices.
Remittances and Diaspora Impact
Education and Healthcare Access
– Tuition Fees: Students studying abroad face difficulties converting naira to dollars, risking delays in tuition payments and academic disruptions.
– Medical Tourism: Limited forex access complicates payments for overseas medical treatments, affecting health outcomes for many Nigerians.
Savings and Investments
Due to Naira depreciation, the value of savings in naira has declined, discouraging local investment. Many Nigerians are turning to stable currencies like the USD, exacerbating forex scarcity.
Potential Long-Term Benefits
While the immediate effects of the CBN’s forex strategy are challenging, there are potential long-term benefits:
– Economic Stability: A unified exchange rate could attract foreign investors, create jobs, and reduce inflation over time. According to the National Bureau of Statistics (NBS) capital importation report for third quarter of 2024, though Foreign Direct Investment (FDI) recorded the least with $103.82 million (8.29%) of total capital importation in Q3 2024, the number still reflects 73.70% YoY and 248.07% increase on quarter on quarter in the same year. Portfolio investment continued to top with $899.31 million, in the third quarter, witnessing 932.39% YoY.
– Export Growth: Reduced Corruption: Transparent forex policies could close loopholes and ensure fairer distribution of forex resources.
The Parallel Market Challenge
Despite the CBN’s efforts, the parallel market remains a significant factor in Nigeria’s forex landscape. For many Nigerians, this means:
– Paying higher premiums for dollars, driving up the cost of essential goods.
– A lack of trust in official policies, pushing transactions underground and undermining the CBN’s reforms.
The Way Forward
For the CBN’s forex strategy to succeed, policymakers must address the following:
Short-Term Relief: Implement targeted subsidies or social programmes to cushion the impact of rising costs on vulnerable populations.
– Transparency and Communication: Clearly communicate the goals and benefits of reforms to rebuild public trust.
-Support for Local Industries: Provide incentives and infrastructure to help local producers meet demand and compete with imports.
The CBN’s forex strategy represents a bold attempt to stabilize Nigeria’s economy and lay the foundation for sustainable growth. However, the immediate impact on the average Nigerian—rising costs, unemployment, and limited access to forex—cannot be ignored.
While the long-term vision offers hope, its success, according to analysts, depends on balancing economic reforms with measures to protect the most vulnerable. For now, Nigerians can only gird their loin to navigate the challenges of today with the hope that these sacrifices will lead to a more stable and prosperous future.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
